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Among Blockchain-Friendly Jurisdictions, Malta Stands Out

Marlene Ronstedt is a writer and journalist whose work has appeared in German and English publications including WIRED Germany. Currently, she is working for Neufund as a blockchain reporter.

André Eggert is a partner at the law firm of LACORE LLP and the legal architect of Neufund.org, a platform for primary offerings of tokenized equity.


Among the handful of blockchain-friendly jurisdictions around the globe, Malta stands out with perhaps the most forward-thinking regulatory agenda.

In a testament to its success, the European island state has attracted a couple dozen blockchain businesses, such as the crypto exchange Binance and our company, the equity fundraising platform Neufund. A recent study from Morgan Stanley shows that Malta has established itself as the No. 1 spot for crypto trading.

Malta has achieved this in part by removing regulatory uncertainty. Also, in contrast to other jurisdictions, Maltese legislators understand that blockchain is much more than just cryptocurrencies. And Malta is not simply being lenient to attract business, which could be said of Zug, Switzerland – whose loose interpretation of what constitutes a non-profit attracted many crypto companies, which fundraised in the name of the social good to skirt U.S. securities law.

Instead, Malta is writing laws for tomorrow’s economy rather than trying to impose yesterday’s rules upon it. Consider the unprecedented way it is legally recognizing smart contracts and DAOs.

Malta created a legal framework earlier this year which defines DAOs (Decentralized Autonomous Organizations) as a new type of legal entity called “Technology Arrangements.” Next to the newly passed Technology Arrangement Bill and the Virtual Currencies Bill there will be also a new regulatory body: the Digital Innovation Authority (MDIA). Because why should the MFSA (the Maltese equivalent of the U.S. Securities and Exchange Commission) oversee blockchain businesses if new competencies are needed?

Instead of giving out licenses, requirements for which were established decades ago, the MDIA will audit the code of smart contracts. And in some cases, the MDIA will determine whether a business is eligible to obtain a license or not solely on the basis of code.

It is also the MDIA which will be in charge of auditing the code of DAOs and granting them the title of a “Technology Arrangement.” One can think of a Technology Arrangement as something similar to a limited company. It is a legal architecture that grants a DAO rights and duties just as a registered company would. The major difference, however, is that a DAO runs without managerial supervision.

Such a legal arrangement has never existed before and thus sparks a lot of open questions. “The task wasn’t just limited to creating an artificial legal personality, we also had to analyse how the technology has come about and predict how it might evolve,” said Maltese fintech entrepreneur and blockchain expert Abdalla Kablan who has been advising the government and wrote parts of the legislation. He added:

“The idea was to get the public to become aware and understand that it may be beneficial to society as a whole to recognize that a technology arrangement could indeed operate better and more safely if it had a legal personality allowing it to take into consideration all the rights and remedies in case of financial or even ‘physical’ harm, to all those around it.”

Whether a business can get licensed by the MDIA is determined through the “financial service test.” The test looks at whether a financial product or business falls under the European MIFID framework. If not, then the MDIA is in charge of licensing a business and auditing code. The code is audited by external parties to avoid bottlenecks, since the country is expecting an influx of businesses applying for licenses with the MDIA.

Rights for robots

Beyond the crypto community, the law has some staggering implications for society: A scenario in which autonomous robots can potentially operate as legal personas.

Consider this: A DAO can do the same things a corporation can, but instead of shareholder resolutions or management actions, the decisions are made and executed by artificial intelligence and smart contracts.

Under the proposed statute, a Maltese DAO incorporated as a Technology Arrangement could, for example, buy real estate in another EU country, just like any other legal person. Furthermore, the DAO could tokenize some of its ownership as securities and sell them on decentralized exchanges to other DAOs, companies or investors made out of flesh and blood.

Suddenly, we would have a world where humans and software are both legal entities.

The moment the law was be enacted in June, a Maltese DAO could legally acquire land in all other 27 EU member states. Due to an EU treaty, member states are obliged to acknowledge the existence of legal entities or legal personas from other member states.

Meaning, for example, that Germany or France cannot forbid robots, AI, or software to grab some prime real estate or close any other business deal. Additionally, the Union cannot just wipe out legal personas from its member states.

A model for the EU

Stepping back, the European Union does not currently have a specific legal framework governing blockchain-related activities, but European regulators are inclined to get an EU-wide regulation out.

Malta’s sandbox serves as an example for these regulators in Europe and the rest of the world. The result of this adventure will most likely influence the decisions of EU lawmakers.

This raises an interesting question, however: Would Malta retain its status as the “blockchain island” once Brussels has adopted similar policies?

Definitely, we think. Beyond the law, the country is working on creating an entire blockchain ecosystem. This includes new programs and departments at universities, as well as co-working spaces aimed at blockchain companies.

The country is also thinking about reforming the banking sector to push for more crypto friendly banks for founders. Those moves cannot be easily copied by other regulators since such an ecosystem grows naturally and is more sustainable.

“Even the bravest projects, tech-related or not, require the right environment to grow bigger and stronger and we are determined to offer that environment in Malta,” said Silvio Schembri, the Maltese Junior Minister for Financial Services, Digital Economy and Innovation.

In conclusion, compared to other countries, Malta has solidly established itself as a blockchain hub (view this map in order to see and follow the status of other crypto-friendly jurisdictions around the world). But with its bold moves, Malta is kicking off an urgently needed European debate about how new technologies should be regulated.

Malta image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Huobi to Offer $166 Million In Funding to Fuel New Blockchain Creation

Cryptocurrency exchange Huobi announced Wednesday plans to allocate 30 million of its Huobi Tokens (HT) to fund the creation of the company’s own open-sourced blockchain protocol.

The fund, currently worth around $166 million based on CoinMarketCap data, will be used to launch the Huobi Chain Project, which is also aimed to establish a decentralized autonomous organization (DAO) on top of the proprietary blockchain, the company said at a press conference in Singapore.

The blockchain would serve as a platform for users to participate in token fundraising events (ICOs), as well as to vote for which tokens should be listed on Huobi, said Chen Guang, a director at the company’s ecosystem development arm.

While the firm also envisions ultimately migrating its exchange to the blockchain system to evolve it into a decentralized exchange, such a move is still uncertain as the move would require higher levels of efficiency and security.

Even so, Chen believes the future of the blockchain ecosystem should be a combination of centralization and decentralization.

He told CoinDesk:

“We want this to be a social experiment. The future is not likely to be entirely decentralized. As such it’s important to find the equilibrium that balances the two polars, which is the ultimate goal of this exploration.”

As such, Houbi is seeking external assistance in developing the new system by providing the 30 million tokens as incentives over a number of stages. Further, Chen said, the exchange will allocate a fraction of its yearly revenue to the pool, though it is yet to disclose the exact percentage.

The development process is anticipated to be completed in the next 18 months, and will be divided into eight phases – with each being, in effect, a contest for developers to participate in and to compete for the tokens.

To guide the process, the company will first establish a committee in the next two to three weeks that will craft a policy and self-regulatory framework for the competition.

Chen indicated that the company is currently talking to up to 10 well-known leaders from open-source blockchain projects who might help form the committee, but declined to reveal the names on the list.

The committee will further nominate a list of candidates for Huobi Chain Project’s potential global lead. After nomination, users will jointly vote for the preferred candidate using their Huobi Tokens. The winner will lead the project’s development and fund allocation at each phase.

While the exact amount of funding to be provided for each stage remains unknown, Chen said it is expected to increase as the project progresses.

Also in today’s press conference, Cai Kailong, chief strategy officer of Huobi Group, announced that the company is launching a new exchange in Australia with expectations of a launch by the end of June.

Chen image courtesy of Huobi

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Chinese Universities to Build Blockchain DAO for Affordable Education

A group of top-tier Chinese universities in China are looking to build a decentralized, blockchain-powered organization aimed to make educational resources more accessible and affordable.

Led by Tsinghua x-lab, the innovation incubator at China’s Tsinghua University, along with several other educational institutions such as the Peking and Zhejiang universities, the initiative was revealed on Sunday.

Dubbed the Youth Education Chain League (YEC League), the project’s vision is to become the opposite of the U.S. Ivy League, in which educational resources are largely limited to the elite, the announcement says.

To do that, the university’s innovation center seeks to build a decentralized autonomous organization (or DAO) based on a blockchain protocol, and which universities or research institutions can join as distributed nodes.

The end goal, according to x-lab, is to let participants vote for future development and applications over the platform, while students and faculties could potentially gain access to educational resources from different institutions shared over its distributed ledger.

Though x-lab has not yet disclosed a concrete timeline for the projects development, the initiative marks a major collaborative move by public universities in China as part of their wider push into researching and developing blockchain technologies.

As previously reported by CoinDesk, universities in China have been pursuing blockchain patents since 2015.

In fact, data from the China Intellectual Property Office shows that universities in the country have filed a total of nearly 140 patent applications that relate to blockchain technology over the past three years, covering a wide range of fields.

Tsinghua University image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Vitalik Has a New Idea for ICOs – And It's Being Tested

Investors need more control over ICOs

At least, that’s according to ethereum creator Vitalik Buterin. One of the early thinkers to shape the crypto funding mechanism concept, he hasn’t quite put the idea aside, last month proposing it could be combined with a decentralized autonomous organization (DAO) to best allow investors to have a say in how money raised gets handled.

Flash forward to today and what Buterin called a “DAICO” is already being developed, with cloud gaming startup The Abyss building its own version for its upcoming token sale.

“This idea found a free place in my heart,” said Konstantin Boyko-Romanovsky, the project’s founder. “We really want to make something beautiful.”

As Boyko-Romanovsky alludes to, the ICO model has been called into question, mainly for enabling entrepreneurs to raise vast sums of money without a product or platform already built. (Even Boyko-Romanovsky has gotten burned by several ICOs, which is why he believes better tech could help ensure a token’s team isn’t interested in a cash grab.)

And by adopting the DAICO model first, he also wants to show investors that The Abyss is truly about disrupting platforms for selling video games (like Valve’s market-leading site, Steam) by making the promotion of video games more flexible and delivering more money to developers.

Still, while the concept will get a test run with The Abyss project, others are skeptical it will be widely embraced.

First and foremost, like ICOs, the DAO concept has a rough history, since the first DAO had a vulnerability that allowed a “attacker” to transfer $60 million worth of ether to themselves. (The consequences and uneasiness of the fallout still reverberate throughout the community.)

Yet, former Monax legal counsel and ICO skeptic, Preston Byrne pointed to a deeper question: Do ICO investors really want to be bothered with governance?

“Most DAO users are less interested in managing their chosen project than they are in offloading their coins at a massive profit on new entrants as quickly as possible,” he wrote.

But Boyko-Romanovsky believes the industry has matured enough, with a significant number of sophisticated, institutional investors coming to the table, to want such insight into the inner-workings of an ICO issuer.

He told CoinDesk:

“DAICO, this is true crypto for me, because it utilizes the best from ethereum.”

Minimum viable DAICO

So, just how exactly does the DAICO combine two of ethereum’s more popular concepts?

In Buterin’s post, he describes a smart contract in which token holders vote to set two mechanisms: a “tap” and a “refund.” First, the tap is the rate at which the smart contract would allow the issuing team to draw down ether from the smart contract that holds funds raised in a crowdsale.

“The intention is that the voters start off by giving the development team a reasonable and not-too-high monthly budget, and raise it over time as the team demonstrates its ability to competently execute with its existing budget,” Buterin said in the post.

The refund then allows users to vote whether they should “self-destruct” the ICO, which simply empties out the smart contract of all remaining ether and returns it to the token holders in proportion to however many tokens they hold.

To Boyko-Romanovsky, it’s a slick idea.

“Most people don’t understand what is DAICO and how it will change the industry,” he said.

But one that was even more attractive since Buterin himself proposed it.

He told CoinDesk:

“We got much, much more attention because of this.”

Upgrading Vitalik

But as much as Buterin’s DAICO idea spoke to Boyko-Romaovsky, the developer is tweaking the mechanism a bit to make it more appropriate for The Abyss.

For instance, The Abyss DAICO will have another way to increase funds to the team, called a “buffer.” The buffer is an option for a one-time payment, so if one month they have a major expense which the flow doesn’t cover, they can propose a buffer vote to token holders.

On top of that, the project’s tap is more limited than the one Buterin proposed.

For one, the flow can never be increased more than half as fast as it was before. So, if the tap is 100 ETH per month now, it can’t go higher than 150 ETH per month during the next vote. On the vote after that, it couldn’t go higher than 225 ETH per month, and so on.

Even then, the rate of raises could still happen quite fast, so The Abyss team inserted another limit. After each tap and buffer vote, no vote of the same type can happen again for two weeks.

The team also defined some rules about what it takes to establish a “quorum” – the number of people it takes to make a vote legitimate.

The number of voters in each vote has to equal no less than half the number of voters in the prior vote. So if 100 people vote in the first poll, at least 50 people have to vote the next time to make a quorum. That said, if 200 people vote on that second poll instead, then at least 100 people would be needed to hold a legitimate vote the next time.

Token refunds?

Perhaps, though, the most radical change The Abyss team made was in what it takes to launch a refund vote.

The Abyss will seek three to five crypto luminaries to serve as “oracles” over their ICO, and a majority of those oracles must agree to a refund vote for it to be initiated. If the oracles vote for a refund poll, then the token holders get a chance to vote on it.

This change protects an honest developer running a DAICO from investors moving for a refund because a rapid increase in the price of ether makes them want to cash out ether now, instead of wait for ICO returns later.

Having added that stipulation, though, Boyko-Romanovsky said, “I am not afraid that my project will be closed because of refund or something else.”

And the industry will soon see, as The Abyss’s ICO starts next month, with a hard cap of $60 million in ether.

“People are asking why we need $60 million, but we really need big money to compete with Steam,” Boyko-Romanovksy said.

The project’s KYC will be run from Switzerland, where the company is domiciled, although the team works from Russia. According to the company’s website, in the U.S., only accredited investors can participate in the ICO, but everywhere else the crowdsale is open to anyone.

With the KYC and restrictions on investors, the project looks to be playing by the rules, something that aligns with Boyko-Romanovsky interest in being a trusted member of the crypto space.

According to him, just as the DAICO concept has attracted attention because of Buterin’s support, potential investors trust people more than they understand the technology or underlying business models of platforms run with tokens.

And in that way, Boyko-Romanovsky concluded:

“I want to become in this market: No matter what I do, what I do is very good. I think people will see in one year. I will get people’s trust.”

Vitalik Buterin image via TechCrunch Disrput

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Interested in offering your expertise or insights to our reporting? Contact us at news@coindesk.com.

Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.

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2018 and Beyond: Tokens Are Slowly Eating the Firm

Tekin Salimi is a corporate lawyer and principal at Xastris.io, a blockchain advisory firm specializing in regulatory, capital markets and ICO execution services.

The following article is an exclusive contribution to CoinDesk’s 2017 in Review.


One of the most fascinating outcomes of the 2017 gold rush into open-source protocol development is the growth of “community management” – a business function that combines elements of marketing, business development, investor relations and human resources.

Community managers are being hired en masse. Their job is to oversee all matters relating to a blockchain project’s community of supporters. This includes interacting with core developers, contributors, investors and even end users. The role of the community manager is vital to the success of a protocol; so vital that a ‘cottage industry’ has propped up overnight to offer community management as a service.

Pay anywhere from tens to hundreds of thousands of dollars and a contractor will manage your project’s Slack and Telegram channels, Reddit posts and marketing strategies (which may include, for example, “air dropping” free tokens to potential contributors).

Even more interestingly, community management is somewhat disrupting traditional notions of how business organizations should operate.

Due largely to the proliferation of freely tradable cryptocurrencies and the use of new incentive games such as developer bounties, there is a growing adoption of, what could be described as, the “communal business model.”

What is the communal business model?

One distinct characteristic of this model is blurring the line between formal employment and informal contribution.

Through the use of bounties and payment via inflationary funding, anyone around the world may contribute labor to a blockchain project and be rewarded through a dilutive issuance in that project’s native currency. Rewards are most commonly offered for tasks such as coding, logo design, website design, white paper translation and more.

In theory, so long as the value realized in a token’s market price by virtue of the work exceeds the value diminished through dilution, any labor sourced and compensated through this model is a net benefit to all token holders.

The use of bounties also bootstraps the development process by mobilizing and incentivizing a much broader group of participants. From management’s perspective, bounties enable the company to meaningfully vet prospective hires through a “trial run” before committing to the offer of full employment.

Unsurprisingly, blockchain projects using these mechanisms today often consist of distributed teams of contributors from around the world, and – anecdotally – have low attrition rates.

Another characteristic of this model is that transparency often trumps confidentiality.

Try spending time in a project’s Slack channel and you may be surprised by the amount of seemingly proprietary information a core team will share. This is uniquely enabled for blockchain development projects due to the open-source nature of the code base in development.

Often, a protocol’s adoption relies more on network effects (i.e. strong community backing) than it does on proprietary information or functionality, so there is an inherent incentive to reduce the information asymmetry between a project’s core team and its support community.

Case Study: Interactive Coin Offerings

The interactive coin offering protocol co-authored by Jason Teutsch (Truebit) and Vitalik Buterin (ethereum) is a great case study of the communal model in practice.

Through a publicized announcement of the white paper, 73 developers joined Truebit’s Slack channel including representation from the Ethereum Foundation, Zeppelin, ConsenSys, Modular, Shapeshift, five acclaimed developers from the USCC coding challenge, and many more.

The group quickly self-organized to build the first implementation of the smart contracts with various parties contributing to the protocol, code, testing, security audits and UI/UX design.

The implementation can be found in Truebit’s Github repository.

DAOs as communal businesses

It is possible that open source development is merely the first use case of a communal business model.

In coming years, decentralized autonomous organizations (DAOs) might utilize the transparency and censorship resistance properties of blockchain technology to pursue their business objectives in new ways. This would blend the traditional roles of managers, employees, shareholders, creditors and customers.

The use of on-chain voting could enable DAOs to implement a liquid democracy model to decentralize managerial decision-making. And similar to the case of protocol development, mechanisms like bounties, inflationary funding and tokenized/automated dividends can be used to incentivize and reward a DAO’s workers.

The notion of a DAO that is operated and governed entirely on-chain is the epitome of the communal business model. As entities of this nature gain adoption, the labour force of the future may look less like a “9-to-5 job economy” and more like a “gig economy” on steroids.

Opening the closed firm model?

Community management is sparking a paradigm shift. One that may, in time, influence even the most “closed” industries to re-evaluate their approaches.

I focus on the example of law firms, as it is the case I am most familiar with. Law firms are business entities that, historically, have had little to no economic incentive to coordinate or cooperate with one another. In fact the opposite is true. Law firms are motivated to safeguard and silo intellectual resources, as very minute and nuanced information is often what differentiates the value proposition of one firm from another.

Nevertheless, we live in a world in which most forms of intellectual labor (including legal work) are being increasingly commoditized.

So, it seems plausible that new “open” approaches may demonstrate the economic benefits to collaboration in certain contexts (such as a nascent regulatory industry like blockchain). The SAFT Project is a great example of a co-ordinated approach in such a context.

To be clear, I don’t expect the firm model to go away overnight – or likely ever. But blockchain technology presents an important opportunity to experiment with open models in traditionally closed arenas.

Many thanks to Robbie Bent (Truebit) for his feedback on earlier drafts of this piece.

Did this article spark your imagination? CoinDesk is looking for submissions to its 2017 in Review series. Email news@coindesk.com to pitch your idea and make your views heard.

Paint in water via Shutterstock

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